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Monetary policy effects in times of negative interest rates: What do bank stock prices tell us?

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  • Bats, Joost V.
  • Giuliodori, Massimo
  • Houben, Aerdt C.F.J.

Abstract

This paper investigates bank stock performance following different monetary policy actions in times of positive and negative interest rates. Controlling for the broader stock market, monetary policy announcements that cause an unanticipated downward shift in the yield curve and a flattening of the shorter-end of the yield curve are found to persistently reduce bank stock prices once the interest rate environment is negative. Consistent with the deposits channel of monetary policy, the effects are larger and more persistent for banks that are relatively dependent on deposit funding. By contrast, a surprise movement in the slope of the longer-end of the yield curve does not impact bank stock prices in times of negative interest rates. Accounting data confirm that a parallel drop in the yield curve following a monetary policy decision in a negative interest rate environment hurts banks through shrinking deposit margins.

Suggested Citation

  • Bats, Joost V. & Giuliodori, Massimo & Houben, Aerdt C.F.J., 2023. "Monetary policy effects in times of negative interest rates: What do bank stock prices tell us?," Journal of Financial Intermediation, Elsevier, vol. 53(C).
    • Handle: RePEc:eee:jfinin:v:53:y:2023:i:c:s1042957322000560
    DOI: 10.1016/j.jfi.2022.101003
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    2. Grandi, Pietro & Guille, Marianne, 2023. "Banks, deposit rigidity and negative rates," Journal of International Money and Finance, Elsevier, vol. 133(C).
    3. Simon H. Kwan & Mauricio Ulate & Ville Voutilainen, 2023. "The Transmission of Negative Nominal Interest Rates in Finland," Working Paper Series 2023-11, Federal Reserve Bank of San Francisco.
    4. Ampudia, Miguel & Van den Heuvel, Skander J., 2022. "Monetary Policy and Bank Equity Values in a Time of Low and Negative Interest Rates," Journal of Monetary Economics, Elsevier, vol. 130(C), pages 49-67.
    5. Cynthia Balloch & Yann Koby & Mauricio Ulate, 2022. "Making Sense of Negative Nominal Interest Rates," Working Paper Series 2022-12, Federal Reserve Bank of San Francisco.
    6. repec:fip:fedfwp:96083 is not listed on IDEAS
    7. Petr Wawrosz & Semen Traksel, 2023. "Negative Interest Rates and Its Impact on GDP, FDI and Banks’ Financial Performance: The Cases of Switzerland and Sweden," IJFS, MDPI, vol. 11(2), pages 1-23, May.
    8. Luis Brandao-Marques & Marco Casiraghi & Gaston Gelos & Gunes Kamber & Roland Meeks, 2021. "Negative Interest Rate Policies: Taking Stock of the Experience So Far," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 22(06), pages 27-32, November.
    9. An Pham Ngoc Nguyen & Martin Crane & Thomas Conlon & Marija Bezbradica, 2024. "Herding Unmasked: Insights into Cryptocurrencies, Stocks and US ETFs," Papers 2407.08069, arXiv.org, revised Dec 2024.

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    More about this item

    Keywords

    Monetary policy; Bank stock prices; Negative interest rates;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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